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DistributionDecisions
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Physical DistributionPhysical Distribution
The process of planning, implementing, andcontrolling efficient, effective flow and storage ofgoods, services, and related information from
point of origin to point of consumption for thepurpose of conforming to customer'srequirements.
Physical Distribution involves the actual
movement and storage of goods after they areproduced and before they are consumed. Activities used to move products from
producers to consumers and other end users
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Supplier Manufacturer Customer
PhysicalSupply
Physical distributionmanagement
Supply Chain Management
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Physical DistributionPhysical DistributionPhysical DistributionPhysical Distribution
The Physical distribution process includes-
Inventory management, Transportation,
materials handling, order size control, orderprocessing
The Total Distribution System
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What isWhat is
Marketing Channel?Marketing Channel?
What isWhat is
Marketing Channel?Marketing Channel?
A set of interdependent organizations(intermediaries) involved in the process ofmaking a product or service available for use orconsumption by the consumer or business user.
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The Nature of Marketing ChannelsThe Nature of Marketing ChannelsThe Nature of Marketing ChannelsThe Nature of Marketing Channels
Distribution
The activities that make products available to customers
when and where they want to purchase them
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The Nature of Marketing ChannelsThe Nature of Marketing Channels
(contd)(contd)
The Nature of Marketing ChannelsThe Nature of Marketing Channels
(contd)(contd) Marketing Intermediary A middleman linking producers to other
middlemen or to ultimate consumers through
contractual arrangements or through the purchase
and resale of products
ProducerProducerProducer
ProducerProducerProducer
CustomerCustomerCustomer
CustomerCustomerCustomerIntermediaryIntermediaryIntermediary
Direct ChannelDirect Channel
Indirect ChannelIndirect Channel
ProducerProducerProducer
ProducerProducerProducer
CustomerCustomerCustomer
CustomerCustomerCustomerIntermediaryIntermediaryIntermediary
ProducerProducerProducer
ProducerProducerProducer
CustomerCustomerCustomer
CustomerCustomerCustomerIntermediaryIntermediaryIntermediary
Direct ChannelDirect Channel
Indirect ChannelIndirect Channel
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The Nature of Marketing ChannelsThe Nature of Marketing Channels
(contd)(contd)
The Nature of Marketing ChannelsThe Nature of Marketing Channels
(contd)(contd) Marketing Channels Create
Utility
Time utility:have products
available when the customerwants them (newspaper delivery).
Place utility: making products available in locations wherethe customers wish to purchase them (conveniencestores).
Possession utility: the customerhas access to theproduct to use or to store for future use (raincoats).
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The Nature of Marketing ChannelsThe Nature of Marketing Channels
(contd)(contd)
The Nature of Marketing ChannelsThe Nature of Marketing Channels
(contd)(contd) Marketing Channels Facilitate Exchange Efficiencies
Reduce the overall costs of marketing exchanges
Reduce search costs
for customers
Maintain order in the
marketplace
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Channel Levels
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Typical Marketing Channels forTypical Marketing Channels for
ConsumerProductsConsumerProducts
Typical Marketing Channels forTypical Marketing Channels for
ConsumerProductsConsumerProducts
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Typical Marketing Channels forTypical Marketing Channels for
Business ProductsBusiness Products
Typical Marketing Channels forTypical Marketing Channels for
Business ProductsBusiness Products
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Distribution Channel FunctionsDistribution Channel Functions
Ordering
Payments
Communication
Transfer
Negotiation
FinancingRisk Taking
PhysicalDistribution
Information
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Importance of ChannelImportance of ChannelImportance of ChannelImportance of Channel
Help in production function.
Matching demand and supply.
Aid communication. Stabilizing the prices.
Forecasting the demand.
Financing the producer.
Promotional activities.
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Factors Influencing the ChannelFactors Influencing the Channel
SelectionSelection
Factors Influencing the ChannelFactors Influencing the Channel
SelectionSelection
1. Product/ market Characteristics
Number of customers and frequency of purchase.
Cost of the product. Level of service required.
Technical nature of the product.
Geographical concentration of the market.
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Factors Influencing the ChannelFactors Influencing the Channel
SelectionSelection
Factors Influencing the ChannelFactors Influencing the Channel
SelectionSelection
2. Company Characteristics
degree of channel control.
Financial position.
Ability of marketing
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Factors Influencing the ChannelFactors Influencing the Channel
SelectionSelection
Factors Influencing the ChannelFactors Influencing the Channel
SelectionSelection
3. Middlemen Consideration
Availability of desired middlemen.
Middlemen cost.Middlemen efficiency.
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Designing Channel SystemDesigning Channel SystemDesigning Channel SystemDesigning Channel System
1. Push Strategy
Involves the manufacturer using its sales force andtrade promotion money to induce intermediaries tocarry, promote and sell the product to end users.
2. Pull Strategy
Involves the manufacturer using advertising and
promotion to induce consumers to ask intermediariesfor the product, thus inducing the intermediaries toorder it.
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Channel Design Decisions (Steps)Channel Design Decisions (Steps)Channel Design Decisions (Steps)Channel Design Decisions (Steps)
Analyzing Consumer Needs
Setting Channel Objectives
Identifying Major Alternatives
Evaluating the Major Alternatives
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1. Analyzing Consumer Needs1. Analyzing Consumer Needs1. Analyzing Consumer Needs1. Analyzing Consumer Needs
Answering key questions helps to determine customerneeds:
Do consumers want to buy from nearby locations orare they willing to travel?
Do they value breadth of assortment or do theyprefer specialization?
Do consumers want many add-on services? Firm must balance needs against costs and consumer
price preferences.
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2. Setting Channel Objectives2. Setting Channel Objectives2. Setting Channel Objectives2. Setting Channel Objectives
State objectives in terms of targeted levels of customerservice.
Channel objectives are influenced by:
Cost
Nature of the company
The firms products
Marketing intermediaries Competitors
Environment
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3. Identifying MajorAlternatives3. Identifying MajorAlternatives3. Identifying MajorAlternatives3. Identifying MajorAlternatives
Types of Intermediaries
Company sales force
Manufacturers agency Industrial distributors
Number of intermediaries
Intensive distribution
Exclusive distribution Selective distribution
Responsibilities of intermediaries
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4. Evaluating the MajorAlternatives4. Evaluating the MajorAlternatives4. Evaluating the MajorAlternatives4. Evaluating the MajorAlternatives
Economic Criteria:
A company compares the likely sales, costs, andprofitability of different channel alternatives.
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Channel Management DecisionsChannel Management DecisionsChannel Management DecisionsChannel Management Decisions
Selecting channel members.
Training channel members.
Motivating channel members. Partner relationship management.
Evaluating channel members.
Modifying channel arrangements.
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Cost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of Channels
Each channel alternative will produce a different levelof sales and costs.
Companies that are successful in switching theircustomers to lower cost channels without loss of salesor deterioration in service quality will gain a channeladvantage.
The lower- cost channels tend to be low-touchchannels.
Buyers who are shopping for more complex productsprefer high-touch channels such as sales people.
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Cost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of Channels
Value-additiono
f
sale
Low
Low High
High
Cost
INTERNET
TELE-MKTG
RETAILERS/
STIRES
DISRIBUTORS
VALUE
ADDED
PARTNER
SALES
FORCE
DIRECT CHANNEL
INDIRECT CHANNEL
DIRECT SALES CHANNEL
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Most marketing managers believe that company sales
force sell more because they are better trained to sellthose products and they are more aggressive becausetheir future depends on the company's success.
After doing cost benefit analysis of the different
channels company has to select those channels whichreduce the cost and maximize the sales.
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Conventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing System
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Vertical Marketing System (VMS)Vertical Marketing System (VMS)Vertical Marketing System (VMS)Vertical Marketing System (VMS)
A distribution channel structure in whichproducers, wholesalers, and retailers act as a
unified systemOne channel member owns the other, has
contracts with them, or has so much power thatthey all cooperate.
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Corporate VMSCommon Ownership at DifferentLevels of the Channel
Contractual VMSContractual Agreements Among
Channel Members
Administered VMSLeadership is Assumed by One or
a Few Dominant Members
Types of Vertical Marketing SystemsTypes of Vertical Marketing SystemsTypes of Vertical Marketing SystemsTypes of Vertical Marketing Systems
Control
High
Low
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Innovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing Systems
Two or more companies atone channel level join
together to follow a new
marketing opportunity.
Example: Banks in
grocery stores
Two or more companies atone channel level join
together to follow a new
marketing opportunity.
Example: Banks in
grocery stores
A single firm sets up twoor more marketing
channels to reach one or
more customer segments.
Example: Retailers and
catalogs
A single firm sets up twoor more marketing
channels to reach one or
more customer segments.
Example: Retailers and
catalogs
Horizontal Marketing
System
Horizontal Marketing
SystemHybrid Marketing SystemHybrid Marketing System
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Hybrid Marketing ChannelHybrid Marketing ChannelHybrid Marketing ChannelHybrid Marketing Channel
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Channel ConflictsChannel ConflictsChannel ConflictsChannel Conflicts
Vertical Channel Conflicts
Horizontal Channel Conflicts.
Multi Channel Conflicts
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Vertical Channel ConflictsVertical Channel ConflictsVertical Channel ConflictsVertical Channel Conflicts
Conflict between different levels with in the samechannel
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Horizontal Channel ConflictsHorizontal Channel ConflictsHorizontal Channel ConflictsHorizontal Channel Conflicts
Conflict between same levels with in the channel
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Multi Channel ConflictsMulti Channel ConflictsMulti Channel ConflictsMulti Channel Conflicts
Exists, when the manufacturer has established two ormore channels that sell to the same market.
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Managing Channel ConflictsManaging Channel ConflictsManaging Channel ConflictsManaging Channel Conflicts
Sell directly to customer.
Build strong consumer brand loyalty.
Build strong relationship with channels members.
Effective negotiation.
Improving real time information system.
Better reward policy. Providing managerial assistance.
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What is Retailing?What is Retailing?What is Retailing?What is Retailing?
Retailing includes all the activities involved in
selling products or services directly to finalconsumers for their personal, non-business use.
Any Organization selling to final consumers-whether it is manufacture, wholesaler or
retailer- is doing retailing.
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Amount of ServiceAmount of ServiceAmount of ServiceAmount of Service
Self-Service Retailers:
Serve customers who are willing to perform theirown locate-compare-select process to save money.
Limited-Service Retailers: Provide more sales assistance because they carry
more shopping goods about which customers needinformation.
Full-Service Retailers: Usually carry more specialty goods for which
customers like to be waited on.
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Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification
Specialty Stores:Carry narrow product lines with deep assortmentswithin those lines.
Department Stores:Carry a wide variety of product linestypically
clothing, home furnishings, and household goods.Each line is operated as a separate departmentmanaged by specialist buyers or merchandisers.
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Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification
Supermarket:Large, low-cost, low-margin, high-volume,self-service store that carries a wide variety of food,
laundry, and household products.
Convenience Stores:
Small stores located near residential areas thatare open long hours 7 days a week and carrya limited line of high-turnover convenience goods.
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Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification
Superstores:Much larger than regular supermarkets andoffer a large assortment of routinely purchased
food products, nonfood items, and services.
Category Retailers:
Giant specialty stores that carry a very deepassortment of a particular line and is staffedby knowledgeable employees.
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Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification
Discount Store:A retail institution that sells standard merchandiseat lower prices by accepting lower margins and
selling at higher volume.
Off-Price Retailer:
Retailer that buys at less-than-regular wholesaleprices and sells at less than retail. Examples arefactory outlets, independents, and warehouseclubs.
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Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification
Factory Outlet:Off-price retailing operation that is owned andoperated by a manufacturer and that normally
carries the manufacturers surplus, discontinued,or irregular goods.
Independent Off-Price Retailer:Off-price retailer that is either owned and run byentrepreneurs or is a division of a larger retailoperation.
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Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification
Warehouse Club:Off-price retailer that sells a limited selection of
brand-name grocery items, appliances, clothing,and other goods at deep discounts to members whopay annual membership fees.
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Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification
Chain Stores:Two or more outlets that are owned and controlled,have central buying and merchandising, and sellsimilar lines of merchandise.
Voluntary
Chain:A wholesaler-sponsored group of independent
retailers that engages in bulk buying and commonmerchandising.
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Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification
RetailerCooperative:A group of independent retailers that bandstogether to set up a jointly owned, central
wholesale operation and conducts jointmerchandising and promotion efforts.
Franchise:A contractual association between a manufacturer,wholesaler, or service organization (a franchiser)and independent businesspeople (franchisees) whobuy the right to own and operate one or moreunits in the franchise system.
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Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification
MerchandisingConglomerates:
A free-form corporation that combines severaldiversified retailing lines and forms under centralownership, along with some integration of theirdistribution and management functions.
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Retailer Marketing DecisionsRetailer Marketing DecisionsRetailer Marketing DecisionsRetailer Marketing Decisions
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Assortment and Services DecisionsAssortment and Services DecisionsAssortment and Services DecisionsAssortment and Services Decisions
Product Assortment:Brand of merchandiseMerchandising events
Services Mix:Different numbers and types ofservices are key to non-price storedifferentiation
Store Atmosphere:Physical layout and feel of the store
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Price, Promotion, & Place DecisionsPrice, Promotion, & Place DecisionsPrice, Promotion, & Place DecisionsPrice, Promotion, & Place Decisions
Price policy must fit its target market and positioning,product and service assortment, and competition
Can use any or all of the promotion toolsadvertising,personal selling, sales promotion, public relations,
and direct marketingto reach consumers
Retailers can locate in, various types ofshopping centers, strip malls, or power centers
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The Future of RetailingThe Future of RetailingThe Future of RetailingThe Future of Retailing
1. New Retail Forms and Combinations
2. Growth of Nonstore Retailing
3. Retail Convergence
4. Rise of the Mega retailers
5. Growing Importance of Retail Technology
6. Global Expansion of Major Retailers